Oct. 3 (Bloomberg) -- Tembec Inc. is joining the revival among Canadian forest-product stocks as Chinese demand for bathroom tissue lifts pulp prices and lumber surges on a U.S. housing rebound.
The Montreal-based maker of pulp, softwood, hardwood and pine lumber, rose the most in almost a year yesterday after producers, including Fibria Celulose SA, the world’s largest maker of hardwood pulp, raised prices for the raw material used in paper and tissue.
“Underlying all this are huge increases in Chinese demand for tissue paper that’s goosing demand for hardwood and softwood pulp,” Brian McClay, founder of Brian McClay & Associates Inc., a Montreal-based pulp-industry consultancy, said yesterday by telephone.
Tembec, which is also benefiting from a recovery in U.S. housing demand, derived 59 percent of its C$1.74 billion ($1.77 billion) in 2011 revenue from pulp, 22 percent from forest products such as lumber, and 19 percent from paper.
“As China becomes more and more urbanized, tens of millions of people every year are moving into apartments and dwellings with flush toilets and they’re using more bathroom tissue,” McClay said.
Last year China consumed a record 6.74 million metric tons of tissue paper, virtually all of it the bathroom variety, about 19 percent more than in 2010, McClay said. New paper mills will probably increase the country’s capacity to produce tissue this year by about 1.6 million tons, he said.
“While many people believe that tissue capacity is being overbuilt in China, tissue paper prices continues to rise,” McClay said. “The outlook is for more of the same.”
Fibria, based in Sao Paulo, announced price increases effective Oct. 1 for hardwood pulp in Asia, Europe and North America, with the North American price rising to $830 a ton, according to data compiled by RISI, a paper and forest industry information provider based in Bedford, Massachusetts.
Domtar Corp. was the first company to announce a $20 price increase for Northern Bleached Softwood Kraft pulp sold in North America and made from spruce, pine and fir sawmill chips, McClay said. Domtar was followed by Canfor Pulp Products Inc., Tembec, Mercer International Inc., and others, he added. The price increases, which are not generally made public, don’t guarantee a rise, as some customers may not agree.
Tembec closed up 10 percent at C$2.25 in Toronto yesterday, its biggest gain since October 2011 and was up 0.9 percent at C$2.27 at 10:29 a.m. today. Vancouver-based Canfor Pulp Products Inc. rose 6.8 percent to C$10.03 yesterday while Domtar Corp., North America’s largest maker of office paper, gained 3.1 percent to C$78.22 in Toronto. All have declined this year through yesterday, with Tembec down 19 percent.
A combination of expected inventory restocking in China and rising pulp prices signals a “mini-rally” that will last through the first half of 2013, said Kevin Mason, Gibsons, British Columbia-based managing director of ERA Forest Products Research, said yesterday in a telephone interview.
The long-term outlook for pulp remains fragile as important consumers, such as newspapers and printing companies, struggle with a changing media landscape.
Companies with more exposure to lumber have led the rally in forest stocks this year as the U.S. housing market has rebounded and amid growing Chinese demand for wood building products. West Fraser Timber Co. has gained 37 percent, while Western Forest Products Inc. has risen 32 percent.
Purchases of new U.S. homes in August held close to a two-year high. Sales dipped 0.3 percent to a 373,000 annual pace following a revised 374,000 rate in July that was higher than previously estimated and the strongest since April 2010, figures from the Commerce Department showed.
Prices for 1,000 board feet of British Columbia benchmark spruce, pine or fir lumber have advanced 12 percent this year, according to data compiled by Bloomberg.
Tembec is “deeply” undervalued, Kevin Cohen, an analyst at Imperial Capital LLC in New York, said by phone. “They have a lot of exposure to lumber and the stock hasn’t moved but lumber prices have moved.”
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